Mazur v. Young

• Decision Date: 16 November 2007
• Docket Number: No. 06-1525.,06-1525.
• Citation: 507 F.3d 1013
• Parties: Richard F. MAZUR, Plaintiff-Appellant, v. Roi W. YOUNG; Dyan Young, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

507 F.3d 1013

Richard F. MAZUR, Plaintiff-Appellant, v. Roi W. YOUNG; Dyan Young, Defendants-Appellees.

No. 06-1525.

United States Court of Appeals, Sixth Circuit.

Argued: May 29, 2007.

Decided and Filed: November 16, 2007.

ARGUED: Charles M. Fortino, Fortino, Plaxton, Moskal & Costanzo, Alma, Michigan, for Appellant. James J. Hayes IV, Lambert, Leser, Cook, Giunta, Milster & Gannon, Bay City, Michigan, for Appellee. ON BRIEF: Charles M. Fortino, Fortino, Plaxton, Moskal & Costanzo, Alma, Michigan, for Appellant. James J. Hayes IV, Lambert, Leser, Cook, Giunta, Milster & Gannon, Bay City, Michigan, for Appellee.

Before: DAUGHTREY and MOORE, Circuit Judges; SHADUR, District Judge.^*

MOORE, J., delivered the opinion of the court, in which DAUGHTREY, J., joined. SHADUR, D.J. (pp. 1023-28), delivered a separate dissenting opinion.

OPINION

KAREN NELSON MOORE, Circuit Judge.

In this diversity action we are asked to determine whether, under Michigan law, the guarantor of a land contract is liable to the seller for any deficiency once the seller has elected forfeiture as his remedy. For the reasons discussed below, we conclude that a judgment for possession after forfeiture extinguishes the land contract, leaving no legal basis to pursue further claims against the guarantor. Therefore, in this case, the guarantor is not liable, and we affirm the district court's entry of summary judgment for the guarantor.

I. BACKGROUND

Roi and Dyan Young, a husband and wife, moved to Michigan in 1993 so that Roi Young could work with Richard Mazur. In August of that year, the Youngs found a vacation home in Perrinton, Michigan ("the property") that they wanted to purchase. Their efforts were frustrated, however, when Roi Young could find financing only at an interest rate that he believed was too high. When Roi Young shared his problem with Mazur, Mazur indicated that "he could buy the property at an unbelievably low rate and just sell it back to [Roi Young]." Joint Appendix ("J.A.") at 235 (Roi Young dep. at 19). In September 1993, Mazur bought the property for $525,000; Roi Young contributed the $125,000 down payment, and Mazur took out a mortgage on the property for the remaining $400,000.

The Youngs apparently did not want to own the property in their name because Roi Young worked in a litigious business. J.A. at 238. Accordingly, in December 1993, the parties agreed that Mazur would sell the property not to the Youngs, but to Equitable Benefit Insurance Services, Inc. ("EBIS"), a California corporation of which Roi Young was the sole shareholder. Under the terms of the land contract, EBIS was to pay Mazur according to the payment terms of the mortgage. Additionally, Roi and Dyan Young entered into a guaranty contract with Mazur that "unconditionally guarantee[d] to [Mazur] the full and complete performance of all of [EBIS's] covenants and obligations under [the] Land Contract to the same extent and with the same force and effect as though the undersigned was the primary debtor under the Land Contract." J.A. at 18 (Guaranty of Land Contract ¶ A).

Sometime during the summer of 1997, EBIS stopped making payments on the land contract, and the Youngs stopped using the property. Eventually, Mazur changed the locks and, in December of that year, he tried to sell the property. Mazur, however, was unable to sell the property because EBIS held the title.

To reclaim the title, in February 1999, Mazur served EBIS and the Youngs with a notice of forfeiture. Mazur filed for possession, and on February 4, 2000, Mazur and EBIS entered into a consent judgment wherein Mazur took possession of the property, EBIS agreed that the land contract had been forfeited, and EBIS waived redemption rights. J.A. at 118. On April 28, 2000, the state trial court dismissed without prejudice Roi and Dyan Young as defendants in the action because of a lack of progress in the case.

According to Mazur, for the next two years he continued to pay installments on the then-refinanced mortgage, utility bills, property taxes, and general maintenance and housekeeping costs. On March 26, 2002, Mazur sold the property for $400,000. Mazur claims that the sale price did not fully satisfy the cost of sale, outstanding property taxes, and the outstanding debt on the mortgage, costing him $41,405.75 out-of-pocket.

To recover that deficiency and other losses, Mazur sued the Youngs in the Gratiot County Circuit Court for $274,676.95, alleging that EBIS had breached its land contract with Mazur and that the Youngs were liable as guarantors for all damages that resulted from the breach. On the basis of federal diversity jurisdiction, the Youngs removed the case to the federal district court. Both parties filed motions for summary judgment, and on March 17, 2006, the district court granted the Youngs' motion and denied Mazur's. Mazur now appeals the district court's judgment.

II. EFFECT OF THE GUARANTY AGREEMENT

A. Standard of Review

We review de novo a district court's order granting summary judgment. Himmel v. Ford Motor Co., 342 F.3d 593, 597 (6th Cir.2003). Summary judgment is proper if the evidence, taken in the light most favorable to the nonmoving party, shows that there are no genuine issues of material fact and that the moving party is entitled to a judgment as a matter of law. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); FED.R.CIV.P. 56(c).

Because this is a diversity case, we must apply the choice-of-law rules and substantive law of Michigan, the forum state. Himmel, 342 F.3d at 598. If we confront an issue that "has not yet been resolved by the [Michigan] courts, we must attempt to predict what the [Michigan] Supreme Court would do if confronted with the same question." Id. In such circumstances, we consider decisions of the Michigan Court of Appeals as well as relevant Michigan Supreme Court dicta, restatements of law, law-review commentaries, and the rules adopted by other jurisdictions. Garden City Osteopathic Hosp. v. HBE Corp., 55 F.3d 1126, 1130 (6th Cir.1995).

B. Default Guaranty Rules

Before considering the specific contract provisions at issue in this case, we briefly review the default rules that govern guaranties and land contracts under Michigan law. Except where the specific terms of the agreement between Mazur and the Youngs override, we apply the default rules. See RESTATEMENT (SECOND) OF CONTRACTS § 5 cmt. b (1981) ("Much contract law consists of rules which may be varied by agreement of the parties.").

When a seller of property seeks redress against a recalcitrant buyer, the seller must make an election of remedies. The seller can choose to pursue either foreclosure or forfeiture, but not both. See Mich. Nat'l Bank v. Cote, 451 Mich. 180, 546 N.W.2d 247, 249 n. 4 (1996) ("If the plaintiff prefers to have money damages under the contract, he should be required to elect that remedy or to foreclose in the circuit court where the defendant will receive credit for the proceeds of the foreclosure sale." (quoting MICH. LAW REVISION COMM'N, 5TH ANNUAL REPORT 36) (emphasis removed)).

In a foreclosure action under Michigan law, "the court has the power to order a sale of the premises which are the subject of the . . . land contract, or of that part of the premises which is sufficient to discharge the amount due on the . . . land contract plus costs." MICH. COMP. LAWS § 600.3115. The proceeds of the court-ordered foreclosure sale are applied toward paying down the debt, and the defendant-buyer can keep any surplus that might remain. MICH. COMP. LAWS § 600.3135(1). Of particular importance for this case, if a foreclosure sale is insufficient to cover the entirety of the debt, "the clerk of the court shall issue execution for the amount of the deficiency" against either the defendant, MICH. COMP. LAWS § 600.3150, or against any other party liable for the deficiency, MICH. COMP. LAWS § 600.3160. Thus, when a seller chooses to pursue foreclosure, the plaintiff-seller can keep neither the property nor any surplus from the court-ordered sale, but the defendant, as well as the guarantor, remains liable for any deficiency that remains after the sale of the property. See MICH. COMP. LAWS § 600.3160; United States v. Leslie, 421 F.2d 763, 766 (6th Cir.1970).

In contrast, a seller may instead elect to pursue forfeiture. If the seller opts for forfeiture¹ and prevails, the seller receives "full possession of the premises." MICH. COMP. LAWS § 600.5744(1). At that point, the seller can keep the property, sell the property, or do with it whatever the seller pleases. What the victorious seller cannot do, however, is continue to pursue the buyer for any deficiency: "[A] judgment for possession after forfeiture of an executory contract for the purchase of premises shall merge and bar any claim for money payments due or in arrears under the contract at the time of trial." MICH. COMP. LAWS § 600.5750 (emphasis added); see also Cote, 546 N.W.2d at 249 n. 1 ("This section is, in effect, a codification—arguably with modifications—of the common-law rule that the forfeiture of an executory contract for purchase of land constitutes an election of remedies, precluding the vendor from later seeking damages for breach of contract." (citation omitted)); Durda v. Chembar Dev. Corp., 95 Mich. App. 706, 291 N.W.2d 179, 182 (1980) ("It is clear that once the vendor has elected the remedy of forfeiture and proceeded to the point of issuance of a writ of restitution, he cannot recover a deficiency judgment for money due under the contract.").

Because forfeiture discharges the buyer from liability for the debt, even if there is a deficiency, judgment for possession after forfeiture has important consequences for guarantors. "As a general rule, the guarantor is released from liability if some act or omission on the part of the creditor discharges the principal debtor of the principal obligation by a rule of law,...